Ellis Jacobs, CEO & President of Cineplex

Discussion of streaming, pricing models, exclusivity and ___ continued in a Q & A Session with Ellis Jacobs, President and CEO, Cineplex.

Bob Sunshine: Ellis, where is the industry headed over the next five years?

There will continue to be a lot of change happening. The streaming content business continues to grow, with our studio partners getting into that business, but looking back, cinema is doing well. Avengers: End Game is the largest-grossing movie ever, and The Lion King also opened strongly. It’s all about content and as long as the content is available, people will attend.

Bob: So what would a typical theatre look like, now and in future? How many screens are you looking for?

I think having six to eight screens is good, but more to the point, we have to create destinations that our customers want to come to. It can’t just be movies; one has to have other entertainment available; good food, virtual reality and other attractions, to create a destination that people can enjoy lots at a one-stop location.

In the old days, you bought your ticket, saw the movie and then left. Today, it’s all about keeping the customer engaged, before the movie, during and after the movie.

Bob: The Cineplex team has been very innovative, creating all sorts of things to make incremental revenue; what are some of these things?

Cineplex has moved from being simply a film exhibitor into an ecosystem of successful entertainment and media companies., We’ve gone into digital place-based media in a big way, becoming a supplier to the digital media needs of McDonald’s Canada, BMW, Scotiabank, Royal Bank, etc., with 57 percent of the mall traffic in Canada for our digital signage business.

That’s not reliant on our theatrical experiences; but they are not much different than what we deliver in our theatres, showing content and delivering it on an ongoing basis. And then Cineplex also has gone into the amusement and leisure businesses, with the advent of The Rec Room venues; we have exclusive rights to Topgolf Canada, with our first location coming soon.

So Cineplex is moving from being a cinema company, to an entertainment destination, where we win the entertainment time and dollars of customers, all tied into our loyalty program, which boasts almost 10 million members now. That’s sixty percent of Canadian households by the way.

Cineplex is still very focused on the movie experience and that will always be important to us. Today you can go to our theatres and see a movie nine different ways, which is kind of scary when you think about [delivering] it, but the choice is there; from 2D, 3D, to 4DX, ScreenX, UltraAVX, IMAX, D-Box, and VIP Cinemas and kids’ auditoriums called Clubhouse…we’re ensuring that customers have a different experience than what they could have at home, so they’ll leave home to come to our destinations.

But for those who want to stay home, we use Uber Eats, which has one selecting a movie from our Cineplex Store online, , and then ordering food for delivery to one’s home. That’s really taken off, replicating a movie experience in the home, complete with popcorn and drinks, even if there’s a premium to it. We’re not the only exhibitor in the world doing that but remember, you have to have the content to do this.

Bob: Sometimes people say that exhibitors are in the concession business, not the movie business. Thoughts?

You still have to have the content to draw them in.

Bob: You touched on screening but what about ‘windows’ – the exclusivity given to us exhibitors for content delivery. In the USA, every major city had a distribution branch office, with windows of two years, but they just keep shrinking. Where do you see it ending up and what do you see as the right point of windows for exhibition?

As you said, the exclusivity was once two years and now it’s shrunk to roughly 70 days, and a model we’ve experimented with in Canada, with Paramount Pictures Canada, holds promise. It’s a formula tied to the amount of time that a specific movie is uplinked and how many screens it is shown on, and how long that content stays in the threatre, before it goes to streaming or electronic sell-through (EST) platforms.

The challenge for the studios is that an underperforming movie makes them want to get it on their other platforms quickly. This experiment with Paramount, with all our circuit participating, with the movies we used, well, those weren’t that popular.

Bob: With Disney’s acquisition of Fox, there’s a lot of concern about concentrating that much presence in one place. Between the two, last year, they distributed up to 30 films.  So question one; how many films will Disney (along with Fox and Fox Searchlight) be putting out this year?

Disney will continue with the films they have in production of course, but I see Disney scaling back, without Fox Searchlight but integrating some of Fox’s regular products being integrated into Disney’s portfolio, and others never made. But Disney is having an awesome 2019; one hit movie after another, with more to come…there’s a ton of product and Disney is very good at marketing. In Canada we’re at a bit of a disadvantage because we don’t have the same penetration in marketing terms as Disney has in the US market.

Bob: If you were to guess, percentage-wise, as to how much of the industry’s product would come from Disney-Fox, what would you guess?

I wouldn’t want to put a number to that. What I would say though is that as long as the content is there, and they work co-operatively with us exhibitors, from a technology perspective especially, things will go well. With The Lion King, Disney helped our cause by providing the movie in multiple languages, because there many Cineplex venues serving our diverse communities, and those languages worked best.

Bob: Will the independent producers pick up the shortfall that may come when Fox scales back production, or will it be Netflix and Amazon, the Apple’s?

It’s true that streaming companies are spending considerable money in making movies. The exhibition industry’s challenge is convincing one of them (and I won’t say their name here) to include the theatrical experience and some, like Manchester by the Sea and The Big Sick by Amazon, have dipped into that and done well with it. I think that company will come around, as it is being challenged by multiple streaming platforms, and the best way to get the word out in a big way is to have your product on exhibitor screens. There’s no doubt about it; cinema is the engine that drives the train.

Bob: I heard a story that Universal wanted The Irishman, tried to strike a deal with Martin Scorsese for $70-80million but turned it down with Netflix coming in at $120 million. Are you seeing a distribution pattern for The Irishman?

We’re hoping that title will go on the big screen; certainly Martin Scorsese wants it on the big screen and there’s talk of a window and maybe we exhibitors, as an industry, can work something out. Now, it won’t be Avengers’ popular; it’s an art movie and it will do good business.

As the traditional studios continue to invest in big tent-pole movies, we exhibitors need the smaller movies to fill our screens and if we can get these streaming companies to bankroll them that would be an awesome contribution. But the world is changing. Two years from now, max, the average Canadian will have seven or more streaming apps on their TV and there will be lots of choice. The winners will be those that can consolidate them into a differentiated offering.

Bob: I don’t see households subscribing to 6 or 7; they’ll pick one or two. Before we go on to talk about NATO, what’s the situation with piracy in Canada?

It was a big issue ten years ago, and there was a lot of piracy in Canada but thanks to the efforts of the smaller exhibitors and the major players like us, we convinced Ottawa to make it a criminal offense to pirate content; we lobbied to make a strong law and won. Today, other than the sound feeds occasionally, there has been no piracy in Canada-completely suppressed. And Canada offers a great model to other countries, make the consequences for doing it much more severe.

Bob: How did you find your first year as NATO chairman, what issues came up and what’s been achieved/accomplished?

It’s been an interesting year; lots of issues to deal with, including piracy, streaming and the theatrical windows, so there are many topics to cover. There are now 104 countries that are part of NATO but most of the focus is US and Canadian-centric.  So to look beyond North America, we formed the Global Cinema Federation to expand our perspectives.

Bob: How is the relationship between NATO and the studios; is it strong?

Yes, the relationship is strong. We at NATO spend an incredible amount of time meeting with the studios to discuss topics, like piracy, like technology, music rights – which has become a big issue for all countries outside the US – accessibility, etc., and the studios have been very supportive about the theatrical window, especially Disney. We’ve told them that this is important to us and we want to have a distinction between what we are offering theatrically and what is going to go on our streaming service.

We, the exhibition industry, were all panicking about what was going to go on these streaming services but the bottom line might be compared to the old days when you had the movie of the week on TV, and nowadays it will become the movie of the week on the streaming services. So I don’t think it’s the issue it’s being made out to be. In fact Ernst & Young in the US did a study and it found that people, who stream the most, also went to movie theatres more often than the average.

Bob: What was the reaction of NATO to Netflix’s admission to MPAA (Motion Picture Association of America) membership?

That was a big shock and surprise to us. But I think the MPAA was losing a member in Fox so they wanted to make it up with Netflix. I guess Netflix’s whole focus on joining the MPAA was more about fighting piracy, and security of content. We haven’t seen a negative impact and if they come and be part of our theatrical experience, it would be even better.

Bob: I’m concerned that NATO isn’t helping independent theatres as much as in the past; what’s the attitude to the regional groups and independents?

We try very hard to keep the smaller circuits involved and a place at the table. An example of their value is that, in Canada, in our attempt to curb piracy, they made the difference in persuading the government to get tough. Independents are struggling with the studios’ demands too.

Bob: Why should an exhibitor join NATO and how NATO supports exhibition globally?

I think NATO is a great, consolidated, single voice for the industry and members get to share in information generated, discussions, and different technology focuses, including that on implementing the ADA and accessibility rules.

Bob: Alejandro Ramirez, CEO of Cinepolis, is one of the founding members of the Global Cinema Federation (GCF) and can you give us insights into the GCF?

Alejandro runs the largest circuit in Mexico, Cinepolis, and now in another 17 countries around the world, including India, and the reason we set up the organization is really to look at global issues and one big one is that of music rights. In the US when a movie plays, an exhibitor doesn’t have to pay for the music rights. In other parts of the world, including Canada, the music rights can amount to from 6 to 8 percent of your box office take, so what the GCF is trying to do is work with the studios to figure out a mechanism whereby we have some kind of uniformity across the world, to deal with the music portfolios and get them up front, rather than each country having to deal with different rules and rights. At the end of the day, those dollars may be going into funds that benefit the bureaucrats running [music licensing] organizations, not the cinema industry.

We’re also working on technology papers and looking at the different tariffs in countries, where it might be meaningful. So that’s the things we want to address and having an organization like GCF gives us a united, expansive voice.

The minute we put the organization together two years ago in Barcelona, every studio phoned me and asked “what are you doing, why are you coming together?” It certainly wasn’t to gang up on the studios, rather to have a common voice to press a united front on windows of exclusivity, technology, music rights and other common areas.

The GCF is getting a lot of traction across the world. There are no dues so if anyone is interested in joining, I can get Alejandro direct you. We have lots of members globally, India, China, the UK, USA and Canada covered. We even had Nigeria…

[Bob said that music rights is a topic that he’ll have patent experts and lawyers address at ShowEast.]